As widely expected by economists, the central bank left its cash rate unchanged at 4.25 per cent.

As expected, the RBA left its key interest rate on hold for another month. Photo: Reuters

The Bank of Queensland, though, has moved to lift its standard variable mortgage lending rates by 10 basis points to 7.46 per cent - making up for not lifting borrowing costs last month when most of its rivals nudged rates higher.

The RBA says "policy is appropriate for now," said JPMorgan economist Stephen Walter, adding that conditions would need to weaken significantly for a further cut.

"There is no real urgency to do anything," he said.

Expectations that the RBA would soon add to the back-to-back monthly rate cuts at the end of 2011 have largely dissipated after the central bank surprised pundits and markets alike at last month’s rates meeting by declaring that its monetary policy was ‘‘appropriate’’ for now.

Today's commentary by RBA governor Glenn Stevens was little changed from a month ago, with the bank keeping its interest rate powder dry should conditions deteriorate.

"With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy remained appropriate for the moment," said Mr Stevens. "Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy."

Treasurer Wayne Swan said the decision by the RBA to leave the cash rate on hold reflects the economy’s underlying strength and resilience at a time of continued global uncertainty.

Mr Swan said he realised many families are ‘‘sitting around the kitchen table feeling like they’re a long way from easy street, and many businesses are doing it tough’’.

But he said the cash rate was still 250 basis points lower than the rate the Liberals ‘‘saddled Australians’’ with when they left office.

The dollar lost ground after the RBA verdict on rates, easing to $US1.063 from $US1.065 just prior to the announcement.

RBA on hold?

Even though the dollar slid - usually a sign investors have raised their expectations of another RBA rate cut - several economists interpreted today's RBA comments as implying the bank won't cut interest rates again soon.

"There was certainly nothing in the statement that suggested an imminent rate cut," said Michael Blythe, chief economist at Commonwealth Bank.

"The risks are still there, but inflation means they can still cut rates if necessary. There is no suggestion they see any reason to do anything pre-emptive on the back of those risks," he said.

Still, the CBA expects the RBA will cut its cash rate in May. Others, though, see the holding pattern lasting a while longer.

"We see it on hold for the rest of the year," said Matthew Johnson, senior economist at UBS.

"The RBA views the economy as pretty healthy on the whol," Mr Johnson said. "If there is a rise in unemployment to perhaps 5.4 per cent, that could change things for the RBA."

The business investment outlook is booming, while the unemployment rate remains low, Mr Koukoulas said. "There's (also) been a slight improvement in credit market conditions in the last four weeks or so."

The state of the jobs market will be revealed on Thursday when the Australian Bureau of Statistics releases labour market figures for Thursday.

'Shocks'

The RBA's governor Stevens said the world economy will grow ''at a below-trend pace this year, but that sluggish growth did not indicate "a deep downturn is occuring."

Europe, though, remains the most obvious threat to the economy, at home and abroad. "The acute financial pressures on banks in Europe have been alleviated considerably by the actions of policymakers, though there is more to do to put European banks and sovereigns onto a sound footing for the longer term," Mr Stevens said. "Europe will remain a potential source of shocks for some time yet."

The RBA predicts inflation will remain inside its preferred 2-3 per cent annual range, helped in part by the structural change now under way in the economy. In raw terms, that means the non-mining sectors have to make way for the surging resources sector.

Those changes should foster productivity growth, helping to keep a tighter lid on inflation than would otherwise be the case, Mr Stevens said.

ANZ in focus

The attention of many borrowers will now switch to this Friday when the ANZ bank will make again announce its interest rates independently of the RBA.

Last month, the ANZ defied politicians and the public alike by opting to lift its variable mortgage lending rate by 6 basis points, or 0.06 percentage points, citing higher funding costs that it had to recoup. The move was quickly followed by most rivals, with 42 lenders raising their variable lending rates by an average of 10 basis points, according to data from rate tracking agency Canstar.

The strength of the Australian economy will be revealed tomorrow with the release of the national accounts for the December quarter. Figures out this week indicate that growth may come in a bit higher than had been expected as rising exports and increased government spending stoke demand.

Exports, for instance, rose to a record in 2011, the Australian Bureau of Statistics reported today. Companies, meanwhile, are planning to invest $170 billion over the next year as new mines are opened up and others are expanded.

Still, many companies outside the mining sector have complained of weak demand and rising competition from abroad because of the strong dollar. Westpac added to a long list of firms announcing job cuts, revealing today the loss of another 126 positions.

43 comments

The RBA is more likely to raise rates than to drop them.

Commenter

bill

Location

sydney

Date and time

March 06, 2012, 11:47AM

This is a very strong economy; it's very healthy.

We 've got good growth

As strong economy, therefore, results in higher real estate prices (as creeping up currently), higher rents on houses (ditto), and higher mortgage rates (compared to world). Mortgage rates will tend to move in the same direction as other interest rates.

Commenter

KennethB.Prosser

Date and time

March 06, 2012, 12:08PM

Nope. House prices have fallen 13 months in a row and rents are flat or falling across Australia but all are falling in real terms.

Commenter

MVF

Location

Free Liu Xiaobo and Congratulations Yu Jie

Date and time

March 06, 2012, 12:40PM

KennethB.Prosser You are wrong. Here is econ 101

A stong economy does not result in higher prices.Higher prices are the result of inflation (to much money chasing to few goods) don't ever get the two confused.

A strong economy leads to a fall in prices. As the supply of the product increases, for example the market for tv's, the demand to buy these products rises. (as the price has fallen) Thus more items are sold and Economic growth rises.

You have the cart before the horse. You dont understand inflation or the supply of money. Read some Von Mises

Commenter

Non Keynsian

Date and time

March 06, 2012, 12:55PM

WILD VOODOO DISTRACTIONS to MVF

At present, while land and building values are either continuing to RISE or have stabilize, long-term holding is encouraged as owners await a market upturn and value return to or approaching earlier levels as occurring now in real estate hot spots auction results and sales this month show a rise and pre August 2008 sales are revealed.

And, as usual in a market upturn, the trickle-down effect is occurring in other areas rising.

Proeprty prices in desirable and good areas are outperforming what doomsayers love to own but talk down in desperation nowadays.. Should we fall back on laissez- faire economic theory?Australia is a strong economy at ground zero

Stick theory and economic theory in the wind buddy!

Itis interesting to note that in many countries the rise in house prices has not been accompanied by the normal dynamics of a housing market upturn.

Commenter

Karen C. Sorrells

Date and time

March 06, 2012, 1:11PM

Takes a heck of a lot to get the RBA to lower rates, but just a sniff for the Fifth Horseman of the Apocalypse (Glenn Stevens RBA Governor) and his cronies, to jack them up. But, what can one expect from a banker and the highest paid public servant in the land. The man is paid from the taxes of the working folk of this country and yet more than any other single individual, he causes more anguish for us all.The role of the RBA is too narrow and needs to be assessed by the Treasurer. On the basis of what Glenn Stevens does, he is worth little more than the basis wage. A recent economics graduate could do as well.I suppose that we should all be glad that the RBA does not regulate the supply of oxygen, otherwise we would all be 'stuffed'!

Commenter

Dragonfly

Location

Beaumaris

Date and time

March 06, 2012, 11:55AM

No he isn't. The RBA generates about 2 billion dollars in revenue a year, part of which pays for his salary.

His job isn't to make sure you get cheap credit because you over-borrowed, it's to maintain the money supply so we don't have inflation - something which would increase interest rates if it were to get out of control.